Yesterday, the fall in local rates reflected the previous day’s US trading. NZ’s 10-year government bond rate fell by 6 bps to 2.91, its lowest level since November.

The market is likely to welcome some new supply, with the DMO looking to sell $150m of 2025 bonds today.

The yield curve flattened, with traders wary of taking short end rates lower ahead of today’s Q1 CPI release.

The 2-year swap rate was flat around 2.30%, while the 10-year swap rate fell by 4 bps to 3.26%.

The CPI release is expected to show rising inflationary pressure. Annual CPI is expected to be 2.0% by the market and 2.1% by BNZ economists. This is well up from 1.3% y/y in Q4 and 0.4% just six months ago.

Core inflation measures are also expected to continue their rising trend.

The RBNZ has already indicated that it will look-through what it suspects to be a temporary rise in inflation. This has reduced the prospect for a significant market reaction to the likely high inflation outturn.